mhm and esi -two big growth stocks for 2011, page-29

https://www.citigroupgeo.com/pdf/SAU09787.pdf

Competing technology ECT COLDRY.

White Energy Company (WEC.AX)
Black Coal, Brown Coal, White Coal
?? We initiate coverage with a Buy/High Risk recommendation and A$6.00
target price ?X White Energy owns a unique technology for producing
binderless briquettes from low grade coal. The technique dries then
reconstitutes sub-bituminous coals, thus raising the energy content by up to
50% to c.6,000kcal/kg while retaining low ash, sulphur and nitrogen, a plus
for power generators. The technology has the potential to open up vast, lowgrade
deposits that are currently uneconomic in export markets.
?? How long is a piece of string? ?X A major difficulty in valuing White Energy is
estimating the ultimate market penetration of its products. We model a
series of ramp-up scenarios for White??s targeted 43Mtpa capacity. Our
scenarios are benchmarked to existing data and we risk weight to 50%,
which gives our base case target of A$6.00 (i.e. DCF of A$12.07). If we
assume WEC can capture 100Mtpa of global sales, our target would rise to
A$13.15, all else being equal.
?? End-use and distance are factors ?X our analysis suggests that briquettes
manufactured from low-rank Indonesian coal would be very competitive into
India and East Asia where Indonesian shippers already hold a freight
advantage over other suppliers. However, we believe that for the US, long
rail distances could limit the export potential of briquettes in the seaborne
market where rail >c.750km. Conversely, for domestic markets, distances
have to be great enough (40-50km) to justify the additional processing of
low-rank coals.
?? Competitors are out there ?X White Energy is one of a number of companies
that are advancing coal drying technologies and hence we believe its
success will likely breed duplication by its competitors. As one of the most
advanced companies in the field, WEC has early mover advantage over many
of its rivals but risk exists in China, for example, where the demand for
energy is greatest.
?? Outlook and share price drivers ?X after some teething problems, the first
1Mtpa briquetting plant in Tabang Indonesia is approaching steady state.
WEC aims to maintain a steady 1Mtpa through 2011, 1.8Mtpa in 2012 with
additions from USA and 7Mtpa in 2013, mainly from Indonesian expansions.
Share price drivers: 1) Achieving steady state at Tabang; 2) Award of
Indonesian export licence; 3) Timely plant expansion. Key ris